UPDATE 2-Nokia to fight rivals with cheaper models-sources

COPENHAGEN, Feb 22 (Reuters) - Nokia is shifting
the focus of its turnaround strategy to regaining domination of
cheaper handsets after a stuttering campaign to catch up with
Apple and Samsung in high-end smartphones.

Company sources said it would introduce cut-price basic
phones to compete with the likes of Huawei and ZTE
and a new, lower-price model of its Lumia smartphone on Monday
at the Mobile World Congress convention in Barcelona.

Nokia, once the industry's undisputed leader, is struggling
to close the yawning gap with Apple's iPhones and Samsung's
Galaxy smartphones and is also losing share in the low-end
market which still accounts for the bulk of its sales.

While some media reports have said that Nokia will announce
a tablet in Barcelona, the company is not yet ready to unveil
one, one of the sources said.

DOUBLE STRATEGY

"What they have to do is increase share in the growing
smartphone part and also defend market share in the other," said
Swedbank analyst Hakan Wranne.

He said a lower-priced Lumia would help boost its mid-tier
offering, an increasingly important market as more consumers in
developing markets demand access to Facebook and other social
media sites from their mobile phones.

"In order to not continue to lose share in the overall
market Nokia has to put forward competitive low-end smartphones.

"What's happening now is that the U.S. and Europe, the big
smartphone markets, are really approaching saturation where
customers will be upgrading to another smartphone or just
replacing one that's broken. That's not a growth market."

Lumia smartphones, which use Windows software, were
widely seen as make-or-break models for Nokia due to their high
margins.

The company has concentrated on developing the range in the
past two years, launching a top-of-the-range 920 model last
November. But it has been slow to take off, and investors have
said Nokia's dwindling cash position means it may soon need to
change course if sales do not pick up in the coming quarters.

Most Lumia phones cost over $200, and the 920 can retail at
over $600 without a carrier contract in the United States and
some European markets.

By contrast, the average selling price of Nokia's mobile
phones was 31 euros in 2012, down from 35 euros a year earlier.

SMARTPHONE SQUEEZE

Nokia's market share in the smartphone business is still
only around 5 percent. According to Gartner, Apple and Samsung
held a 52 percent share in the smartphone market in the fourth
quarter.

Nokia sold 4.4 million Lumia devices in the fourth quarter,
and analysts say it must more double those sales and offer more
mid-range models to convince investors its smartphone strategy
is working and it can survive.

Nokia has already been expanding its line-up of Asha models,
which offer some access to the Internet but with fewer features
than high-end smartphones, to bolster its share in developing
markets such as China and India.

Customers of such mid-tier phones often upgrade to more
advanced phones, while sticking with the same brand or operating
system, analysts said.